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HEAD, Justice.
The contract involved in the present case is one for the lease of lands, and the income derived from a lease of lands is taxable as ordinary income.
After notice and a hearing, T. V. Williams, as State Revenue Commissioner, made a deficiency assessment for income taxes against Superior Pine Products Company for the years 1952 and 1953. On appeal, the cause was submitted to the judge of the superior court on the pleadings and the stipulation of the parties, without the intervention of a jury. After a hearing, the appeal of the taxpayer was sustained, "and the order of the Commissioner assessing additional taxes for the years of 1952 and 1953" was reversed. On review, the Court of Appeals reversed the judgment of the trial court because "the court erred in reversing the judgment of the commissioner." Williams v. Superior Pine Products Co., 97 Ga. App. 414, 424 (103 S. E. 2d 587).
The decision of the Court of Appeals is based primarily on the contract between the taxpayer, Superior Pine Products Company, and St. Regis Paper Company, entered into on August 27, 1947. The contract designates Superior Pine Products Company as the "seller" and St. Regis Paper Company as the "purchaser". The consideration stated is the sum of $10 and "the mutual covenants and agreements herein contained".
Paragraph 1 provides that the seller agrees to sell to the purchaser, and the purchaser agrees to buy, during a term beginning January 1, 1948, and continuing until December 31, 2007, unless sooner terminated in the manner provided, "all timber and timber rights herein after more specifically set out, growing and to be grown, on the land described . . . "
Paragraph 2 provides that the purchaser shall pay the sum of $2 per cord of pulpwood, or its equivalent, and it is provided that the total sum payable by the purchaser to the seller in any calendar year shall not be less than $150,000. This paragraph provides for an adjustment in the price of $2 per cord in a manner therein set out, or for arbitration in the event the parties are unable to agree on adjustments in the purchase price.
Paragraph 3 provides that 1,000 feet of saw timber shall be treated as 3 cords of pulpwood; 1,000 crossties as 40 cords of pulpwood; 1,000 lineal feet of poles as 3 cords of pulpwood; and each turpentine crop of 10,000 cups shall be treated as the equivalent of 300 cords of pulpwood. It is provided that the word "cord" shall mean "128 cubic feet of stack rough wood."
Paragraph 4 provides that, in the judgment of the parties, under good forestry practices, the average annual growth or reproduction will be at least 150,000 cords; and, "on January 1, 1948, and on the first day of each quarter thereafter during the entire term of this agreement," the purchaser shall pay to the seller a sum equal to one-fourth of the purchase price of 150,000 cords of pulpwood, or its equivalent; and that, should the purchaser during any one or more calendar years not cut, remove, or otherwise utilize timber in the amount the purchaser is required to pay for with respect to such year, the purchaser shall be entitled to cut during subsequent years timber so paid for but not cut or removed, provided that the purchaser shall not be entitled to cut any timber and apply it against its credit by payments in prior years until the purchaser shall have first cut and removed the allowable amount for such current year.
Paragraph 5 provides that the purchaser shall have the right to cut and remove 150,000 cords of pulpwood, or its equivalent, during each calendar year of the agreement, but that the amount shall be subject to increase or decrease as provided in the contract. Should the average annual growth fall below 150,000 cords, the amount the purchaser shall have the right to cut and remove shall be reduced to the amount of the annual growth or reproduction, but the amounts required of the purchaser to be paid under paragraph 4 shall not be reduced. Should the annual growth or reproduction exceed 150,000 cords, then the purchaser shall have the right annually to cut the amount of the average annual growth, by correspondingly increasing the payments provided for in paragraph 4.
In Paragraph 5 (a), it is provided that the purchaser at its own expense during the term of the agreement will manage and operate the lands in accordance with good forestry practices, including, but not limited to, the restocking of areas cut or burned, "in such manner that the average annual growth or reproduction shall not be less than the amount of timber cut and removed or otherwise utilized annually." This paragraph also provides methods of restocking lands cut over, which methods might be by restocking or planting, in addition to others therein set out.
Paragraph 6 provides for the selection of arbitrators, should there be a dispute between the seller and the purchaser as to what constitutes good forestry practices. It is also provided that, subject to the provisions of paragraph 4 as to the purchaser's cumulative cutting rights within a twelve-year period, a mutual agreement that the average annual rate of growth is in excess of 150,000 cords, or in the absence of agreement, an award of arbitrators finding the excess, "shall be a condition precedent to the right of purchaser to cut . . . in excess of 150,000 cords of pulpwood per year the right of seller to demand and receive payment for such excess grown or reproduced but not cut or otherwise utilized," and that the award of the arbitrators that the annual growth is in excess of 150,000 cords shall conclusively establish the rate of growth and the amount that may be cut.
Paragraph 7 provides for a method of restocking lands burned over.
Paragraph 9 provides that the purchaser, in addition to the amounts payable to the seller, shall pay all costs, charges, and expenses in the operation and management of the land and the timber thereon, including, but not limited to, fire protection, all ad valorem taxes and taxes assessed against the lands or the timber thereon, or the improvements, structures, and equipment now on the land, and for the payment of other charges, but it is provided that the purchaser shall not be required to pay income, franchise, intangible, or sales taxes.
Paragraph 10 provides that the purchaser shall have the right to use, occupy, and repair all existing improvements, buildings, and structures; and at the expiration of the agreement shall return the buildings and improvements in as good condition as when received, ordinary wear and tear excepted.
Paragraph 11 provides that the purchaser shall have the right to construct, use, maintain, and occupy buildings, structures, mills, trucks, equipment, machinery, and improvements, as it shall deem necessary, with the right to construct and maintain roads and bridges; and shall have all surface rights upon the lands "needed from time to time by purchaser in the development of the forest lands," including free and unlimited logging privileges, grazing rights, game management, and right of ingress and egress.
Paragraph 12 provides that gas, oil and mineral rights, and the right to explore therefor are reserved to the seller.
Paragraph 14 provides that the agreement is subject to certain oil and gas leases and other agreements.
Paragraph 15 provides that the purchaser shall have the right to terminate the agreement at the expiration of the 20th, 21st, 22nd, 23rd, or 24th year, by giving twelve months' notice.
Paragraph 16 provides rights to the seller should the purchaser default in any payment; for a right to terminate the contract for such default in payment; and that, upon default in payment, the purchaser's right to cut or utilize any timber is automatically suspended.
Paragraph 19 provides that the seller will not sell the land to a third party except during a twelve months' period following the expiration of an option to the purchaser, under stated provisions.
Paragraph 20 provides that, should either party be unable to perform by reason of war, acts of a public enemy, labor strikes, or other causes, the payment provided in paragraph 4 shall be reduced to the extent of the time it is so prevented from performance.
Other provisions of the contract pertaining to the rights of the parties do not purport to cancel or annul rights previously granted.
Our income-tax law requires the payment annually of an income tax on the net income of property held or business done by corporations. Code 92-3102 as amended. In the present case there is no contention that the taxpayer is not subject to the general provisions of the income-tax law, or that the tax claimed to be due the State was not in fact due under the provisions of 92-3102 as amended. It is contended, however, that the taxpayer is entitled to calculate taxes due by it in the manner applicable to long-term capital gains pursuant to the provisions of Code (Ann.) 92-3119 (Ga. L. 1952, p. 405, et seq.; Ga. L. 1953, Jan.-Feb. Sess., pp. 267-268).
Whether or not the "capital gains" provision of our income-tax law (enacted in 1952) was taken from the United States Internal Revenue Code, is not material as to the legal effect of the contract between the taxpayer and St. Regis Paper Company. The State law controls in determining the legal effect of a contract executed pursuant thereto (Poe v. Seaborn, 282 U. S. 101, Helvering v. Stuart, 317 U. S. 154, 162); and paragraph 24 of the contract provides that it shall be construed according to the laws of Georgia. The construction of such contract is a question of law for the court. Code 20-701. Where the terms of a contract bare ambiguous, the intention of the parties is a question for the jury. Weems v. Georgia Midland &c. R. Co., 84 Ga. 356 (11 S. E. 503); Summerour v. Pappa, 119 Ga. 1 (45 S. E. 713).
In the absence of fraud, accident, or mistake, a complete, unambiguous contract can not be enlarged or varied by parol evidence which is inconsistent with the written instrument. DeLoach & Brother v. Smith & Anderson, 83 Ga. 665 (10 S. E. 436); Holloway v. Brown, 171 Ga. 481, 483 (155 S. E. 917); Thomas v. Eason, 208 Ga. 822 (69 S. E. 2d 729), and citations. It is not contended that there was fraud, accident, or mistake in the contract, or the execution thereof, between the taxpayer and St. Regis Paper Company. On the contrary, the contract is full, complete, and unambiguous, and it was the duty of the court to construe it. Bozarth v. Paschall, 158 Ga. 208, 209 (5) (122 S. E. 683). Allegations by the taxpayer in its appeal as to the nature, character, or extent of its business or operations prior to the execution of the contract are wholly irrelevant, and add nothing to the terms or legal effect of the contract. The stipulation by counsel (which includes the contract) as to compensation received for pulpwood sold amounts to nothing more than establishing that the pulpwood was derived from timber upon the lands described.
Possession of the lands, and the right of possession, for a term of sixty years under the contract having been acquired by St. Regis Paper Company, the Court of Appeals correctly held the contract to be a lease of the lands described. Code 85-801, 85-806. Under the general law, which is in harmony with the rule in Georgia, the contract between the parties is a lease of the lands. 51 C. J. S. 804, 202; 32 Am. Jur. 46, 24. See also Black's Law Dictionary (3d ed.), p. 1081; 2 Bouvier's Law Dictionary (3d rev.), p. 1887.
Counsel for the taxpayer contend that in copying the language of the Federal law into the Georgia statute, it must be assumed that the language was intended to have the same meaning that it had been held to have under the Federal statute. A decision by a Federal court in point on its facts with the present case might be strongly persuasive, but not controlling, on the Georgia courts. Counsel have cited no case in point on its facts, and our extensive examination of Federal decisions has not revealed such a case. Counsel for the taxpayer cite and rely strongly upon Blodgett v. Commissioner of Internal Revenue, 13 U. S. Board of Tax Appeals, p. 1388; Stark v. Commissioner of Internal Revenue, 45 U. S. Board of Tax Appeals, p. 882; Carroll v. Commissioner of Internal Revenue, 70 Fed. 2d 806; and United States v. Robinson, 129 Fed. 2d 297.
As shown by the statement of facts in the Stark case, supra, the contract was one for the sale of standing timber, and the Board of Tax Appeals ruled against the contention of the Commissioner of Internal Revenue that the sale was from "property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business." In both the Stark and Blodgett cases the contract was limited to the sale of standing timber, and there was no lease of the property for the growing of trees over a long period of years.
In Carroll v. Commissioner of Internal Revenue, supra, the contract was one for the sale of standing timber, and it was held that, under the facts of that case, the standing timber was a capital asset. In United States v. Robinson, supra, the District Judge held that the timber was a capital asset and was not property held in the ordinary course of the taxpayer's trade or business. The Circuit Court, in affirming the District Judge, pointed out that the Government's claim was one extreme in its nature, in that the property in question was inherited by the taxpayer, was sold by her for the purpose of liquidation, and that she had never been engaged in any kind of business.
Based upon our consideration of cases, the decision by a Federal court nearest in point with the essential facts of the present case is that of Commissioner of Internal Revenue v. Boeing, 106 Fed. 2d 305. In the Boeing case independent contractors or agents were engaged to cut and remove logs sold by the taxpayer. This was said to be insufficient for a holding that the respondent was not engaged in a trade or business. The court quoted with approval from Welch v. Solomon, 99 Fed. 2d 41, 43, as follows: "The personal attention which a taxpayer gives to a business is certainly not decisive as to whether a resulting profit is ordinary income or capital gain. One may conduct a business through others, his agents, representatives, or employees. The business is nonetheless his because he chooses to let others bear all of the burdens of management." In the Boeing case it was held that Boeing was engaged in the business of "selling logs," and that the income derived therefrom was income from a trade or business.
It is provided by the lease in the present case that no title shall pass until the wood is cut, that it is to be sold by the cord, and that a cord shall contain 128 cubic feet of rough, stacked wood. Counsel for the taxpayer in their brief quote headnote 3 from the decision of this court in Clarke Bros. v. McNatt, 132 Ga. 610 (64 S. E. 795), as follows: "A contract of sale in regard to timber which is attached to the soil, but which is presently to be severed therefrom and converted into personalty before the title is to pass to the purchaser, is an executory sale of personalty, and not of an interest in land." It is contended by counsel "that the contract is merely an executory contract to sell -- an executory contract to sell personalty, to wit, timber severed from the land." Counsel cite the provision of the lease that "title to timber shall pass from seller to purchaser when and only when such timber is severed from the land," and it is contended that, if this provision of the contract is to be given effect, it must be held to be a provision for an executory sale of timber upon its severance.
The contract is not one for the sale of timber, but is one for the sale of pulpwood, at so much per cord, after it is cut and stacked, and, as contended by counsel, is a sale when consummated of personal property, since wood when cut and stacked is personalty. Boyd v. Newton County, 23 Ga. App. 358 (98 S. E. 237). The terms of the lease in the present case bring it squarely within the language of Judge Sibley of the Circuit Court of Appeals in Brown v. Commissioner of Internal Revenue, 69 Fed. 2d 863, 865, as follows: "We are of opinion that the timber was not sold as a whole, that a sale of none of it occurred upon the execution of the contract, but that sales were accomplished only as the timber was cut and removed."
The taxpayer here wholly fails to show that the sales of pulpwood by the cord as personalty fall within the term "capital asset" as defined by Code 92-3119, as amended, or that the pulpwood has been held for more than six months as a capital asset by the taxpayer as required by the statute. Standing timber is a part of the realty (Coody v. Gress Lumber Co., 82 Ga. 793, 10 S. E. 218; Balkcom v. Empire Lumber Co., 91 Ga. 651, 17 S. E. 1020; Fog v. Scott, 197 Ga. 138, 28 S. E. 2d 107; Shirling v. Hester, 201 Ga. 706, 40 S. E. 2d 743), and as such is a capital asset. When timber is severed from the soil and cut and stacked into cord wood, as contemplated by the contract in the present case, it becomes personalty, and loses its former status as a part of the realty.
Counsel for the taxpayer in their brief insist that, "It is common knowledge, which must be noticed by the court, that 15 to 25 years are required to grow a pulpwood tree." The lease in the present case runs for a period of 60 years; and if it should be conceded that this contention is true, the lessee might cut many thousand cords of pulpwood from trees planted by it upon the land after the execution of the lease, as clearly contemplated by the terms of the lease. If, however, the lease should be denominated an executory contract to sell, as contended by counsel for the taxpayer, then there can be no valid contract to sell timber that was not planted and growing. J. S. Noyes & Co. v. Jenkins, 55 Ga. 586; Huntington v. Chisholm, 61 Ga. 270; Forsyth Mfg. Co. v. Castlen, 112 Ga. 199 (37 S. E. 485).
In so far as the 50 percent deduction from gross income as a "long term capital gain" may be construed as an exemption from income taxes, it falls within the principle that any exemption from taxation must be strictly construed in favor of the State; and the exception claimed will not be allowed unless it shall clearly appear that such was the intention of the General Assembly expressed in unambiguous terms. Mayor &c. of Macon v. Central R. &c. Go., 50 Ga. 620; Hightower v. Beall, Spears & Co., 66 Ga. 102, 107; Mundy v. Van Hoose, 104 Ga. 292, 297 (30 S. E. 783); Standard Oil Co. of Kentucky v. State Revenue Commission, 179 Ga. 371, 372 (7) (176 S. E. 1).
Under the terms and conditions of the lease involved in the present case, the taxpayer has executed a long-term lease of lands for timber growing, cutting of pulpwood, saw timber, and turpentining, and this lease includes all improvements on the land, as well as all other surface rights, grazing and game rights, the proceeds of which, like the proceeds of any lease, are rent, or in the nature of rent, and constitute income under Code 92-3107 as amended. See, in this connection, Palmer Brick Co. v. Woodward, 138 Ga. 289, 295 (75 S. E. 480), where it is held: "A lease may not only confer upon the lessee the right to occupy and cultivate and to remove the products of cultivation, but it may confer on him the power to occupy and remove a portion of that which constitutes the land itself."
Whether or not the taxpayer might be entitled to claim a reasonable allowance for depletion of timber under the provisions of subsection (f) of section 1-A of an act approved February 27, 1953 (Ga. L. 1953, Jan.-Feb. Sess., pp. 274, 278), is a question not now before this court.
Subsection (k) of 117 of the Federal Revenue Code of 1939 was not adopted by the General Assembly, and is not of effect in this State, and the terms and provisions of this subsection have no application in the present case.
Judgment affirmed. All the Justices concur, except Wyatt, P. J., and Candler, J., who dissent.
Eugene Cook, Attorney-General, Ben J. Johnson, Jr., Hugh Gibert, Deputy Assistant Attorneys-General, contra.
Wyatt & Morgan, Jackson & Graham, Ford & Houston, Connerat, Dunn, Hunter, Cubbedge & Houlihan, Malcolm Maclean, Bennett, Pedrick & Bennett, E. Kontz Bennett, Young, Hollis & Moseley, for parties at interest not parties to record.
Tillman & Brice, for plaintiff in error.
Saturday May 23 01:35 EDT

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